The government should seek to prevent U.S. companies from avoiding taxes by merging with a foreign company and then domiciling overseas, says former Treasury Secretary Tim Geithner.

The most high-profile example of that strategy is drug giant Pfizer's attempt to purchase British rival AstraZeneca for $106 billion.

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

The Obama administration's 2012 corporate tax reform plan, which Congress rejected, would have taken care of the issue, Geithner told CNBC. "It was to address, partly, this risk [and] to try to create a system where there's better incentives for investment."

The plan involved cutting the top corporate tax rate to 28 percent from 35 percent and eliminating loopholes. It also would have limited companies' ability to push income and investment overseas while at the same time offering tax credits to companies that repatriate foreign operations.

But even "in the absence of comprehensive reform, you can still do things to make it harder to do these types of transactions," Geithner said. "We should be doing that."

President Barack Obama's 2015 budget included a prohibition of the foreign merger tax dodge, but that budget was dead on arrival in Congress.

Steven Rattner, chairman of money manager Willett Advisors, supports Obama's proposed restriction.

But a more radical idea "would be to scrap our unworkable corporate tax system altogether, [ending corporate taxes] and instead tax shareholders, first by eliminating low tax rates on capital gains and dividends," the former Obama administration official wrote in The New York Times.

Higher taxes on the wealthy are part of the idea, too.

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

Related Stories:

• Romney Aide: Geithner 'Lying' About Mitt's Tax Pledge
  
• Geithner: I Wanted Hillary to Succeed Me at Treasury